At the North Pole Nolito Spain Jersey , the elves are bustling to fill Santa's sack with toys for the world's children. In the real world, Christmas looks like Dongguan: a gray, industrial city in South China, where mile upon mile of factories house mile upon mile of uniformed young women toiling on production lines. Within a single generation, they have swept up the global toy business. But are they bustling hard enough? Reports suggest that America's hottest Christmas toys, such as Mattel's T.M.X. Elmo, are running short this year. And some place the blame on China, where rising labor costs and electricity blackouts have disrupted production. Labor shortages, too, though hard to imagine in the world's most populous country, now affect U.S. firms sourcing from China. "Wages have gone up, the availability of labor is not as plentiful as before, and power shortages continue to happen," says Tom Debrowski, Mattel's executive vice president of global operations. But Debrowski denies that China growing pains have hit the Christmas plans of the world's largest toymaker. The real reason for Elmo's scarcity: an "incredible early takeaway in September that surprised us," he says. American consumers have surprised other toy makers this season. Sales of the $60 Vertical Vengeance Coaster are 35 % ahead of forecasts, says Michael Araten, president of Hatfield Nacho Fernandez Spain Jersey , Pa.-based K'Nex Industries. "We've had to fly in some product (from China) to meet demand … but it's worth it even if we're just breaking even, to keep our customers happy," says Araten. Although U.S. toy retailers are getting better at anticipating inventory needs, and manufacturers are testing new toys earlier in the year, there are "pockets of excess demand," says Carter Keithley, president of the Toy Industry Association (TIA), a trade body representing 85 % of all toy sales in the USA. "Nobody makes money on bare shelves," but predicting sales is "still a gamble in some areas; there is no crystal ball," Keithley says. Planning is growing more complex. China low-cost, compliant labor has lured American companies for two decades. Now, those companies face a raft of new challenges as minimum wage laws raise production costs, raw material prices rise and ethical trading concerns force their partners from China, already operating on wafer-thin profit margins, to treat the workforce more fairly. But, "There's a comfort level about China now — they have the investment anThis article wa.